Business Practices

Strategic Diagnostics

Just as a mechanic uses diagnostics as a tool for working on vehicles, school business officials should apply key diagnostics to financial data to seek out fraud, misuse or simple mistakes in posting of transactions. Particular focus should be on payroll, purchasing and payables, and general ledger.


The following are some simple tests SBOs can complete when reviewing payroll transaction.

Does gross pay equal net pay? Exporting the pay journal to Excel and comparing the gross pay to the net pay amount will help identify an employee who is missing key mandatory deductions.

Are certain employees regularly being paid on off-cycle payments? Most school districts run a standard 26 payrolls throughout the year. If, however one employee is being paid on an off-cycle often, it may signal possible time card manipulation. Exporting all payroll records into Excel and running a few quick sorts on the count of employee identification numbers paid on-off cycle payrolls will help detect this issue.

Does your district experience a high volume of overtime? Digging into your data to find employees who are reporting high amounts of overtime can help identify a few areas of concern:

  • Is the employee really working the overtime?
  • Does the employee have poor time-management skills?
  • Does the employee have too much responsibility assigned to him or her? Maybe a task analysis is necessary.

Exporting your payroll records each quarter can help identify the outliers when it comes to overtime compensation.

Are past employees still being paid? Comparing the employees’ term date and last paid date will help identify past employees who are still receiving paychecks because the termination process was not completed in the financial system.

Do you have ghost employees in your payroll records? Ghost employees are fake employees set up in payroll records as a means to steal school district monies. A comparison of direct deposit account numbers shows when two payroll amounts are being sent to the same bank account. Of course, this doesn’t always signal fraud — it could be because a husband and wife work for the district and share a bank account.

Purchasing and Payables

Ensuring against anomalies in the amounts paid is critical to protecting the district from possible fraud or payment processing errors. The following are some simple diagnostics.

Was an invoice processed twice? By exporting your invoice data from your financial software and sorting it by vendor and amount, you can do a basic Excel formula to identify duplicate payments.

Are an abnormal number of payments being made to a particular vendor? Consider your vendors and the frequency of payments to them. For example, the district will likely make 12 monthly payments each year to a utility company. If financial data show 14 payments were made, determine whether the two additional payments were appropriate.

General Ledger

Identifying what anomalies to look for within the general ledger can be a daunting task. The following are some simple tests school business officials can complete.

Are there duplicate journal entries? It is not uncommon for one person to enter a journal entry and another person re-enter it, not realize the entry had already been made. Examining for duplicate journal entry totals will help identify any errors.

Are employees posting journals that fall outside of their duties? Extracting all adjusting journal entries by user name and creating a pivot table of total count by employee and sum total of all adjusting journal entries can help identify if any employees are posting journal entries to an area outside their job duties or if they have a small number of journal entries resulting in a high dollar amount of adjustments.

Do you have an abnormally high number of transaction journal entries posted that don’t follow your trends? School business officials are familiar with the trends associated with when revenues are received, year-end payroll journals, and many year-end clean up journal entries. Examining the stratification of journals by month can help identify any unusual trends.

A Smooth-Running Machine

School business officials are responsible for designing and implementing effective internal controls to detect and prevent fraud. It is important to understand, however, that anomalies do not always equal fraud. These strategies will help school business officials keep the district running smoothly and efficiently.

Excerpted with permission from the November 2016 issue of School Business Affairs, published by the Association of School Business Officials International.

This article originally appeared in the issue of .

About the Author

Karin M. Smith, MBA, CFE, SFO is a partner with Heinfeld, Meech & Co., PC, Phoenix, Ariz. She can be reached at [email protected].